By Ross Vile and Stephanie Michael
2018 Tax Time is here and this year, the Australian Tax Office (ATO) is putting work-related deduction claims under the microscope. The ATO are targeting deductions with receipt-free thresholds, as they believe taxpayers may feel entitled to claim these deductions in full, without actually incurring the expense.
The general rules to claiming work-related expenses as an employee are:
- You must have spent the money yourself and were not reimbursed
- The expense must be directly related to earning your income
- You must have kept a record to substantiate your claim.
In recent years the ATO has developed increasingly sophisticated tools to assist with analysing and identifying tax returns that may need to be flagged for further review. Therefore making it important that proper records are kept in order to substantiate deduction claims made in your tax return.
Some areas for consideration are:
There are two methods that can be used to calculate your motor vehicle expenses: logbook method and cents per kilometre method.
As the name suggests, the logbook method requires you to keep a logbook of your car’s usage for a 12-week continuous period in order to determine the business-use percentage of your car. You can use this percentage for up to 5 years to claim a portion of your car’s operating costs such as registration, insurance and fuel; all of which require you to keep receipts.
Unlike the logbook method, the cents per kilometre method allows you to claim a maximum of 5,000 business kilometres per vehicle without written evidence. Although you do not need written evidence, the ATO may still ask you to show how you worked out your business kilometres. This may include diary entries of all work-related trips or providing evidence that you are expected to travel for work.
Written evidence may be required to support your claims for any domestic or international travel. This would include receipts for airfares, accommodation, food, drink and incidentals. Where a reasonable travel allowance (in accordance with public service rates) is paid and recorded on your PAYG summary, documentary evidence is only required if you want to claim more than the allowance.
Depending on the length of your trip, you may be required to keep a travel diary to record all dates, places, times and duration of activities and travel. The purpose of the travel diary is to determine the work-related portion of your trip on a reasonable basis. Only unreimbursed travel expenses that are directly related to work may be claimed.
Phone and Internet
To claim a deduction of more than $50, you are expected to maintain records that determine a business use percentage over a representative four-week period. These records may include diary entries of work-related usage and bills. Consideration should also be given to evidence that your employer expects you to work at home or make work-related calls.
Although no written evidence is required, in order to claim up to $150 for cleaning your eligible work clothes, the ATO requires you to use a reasonable basis for determining your laundry claim. Eligible work clothes include clothes that are occupation specific or as part of a registered uniform. The ATO’s considers the following to be a reasonable basis of determining your laundry claim for washing, drying and ironing you do yourself:
- $1 per load – if the load is solely work-related clothing; and
- 50 cents per load – if the load includes other laundry items.
Making a false or misleading statement on your tax return resulting in additional tax to pay, can lead to serious penalties. Depending on the circumstances, the ATO could impose penalties of anywhere between 25% and 75% of the shortfall tax as well as interest charges. Therefore making it important to get your deductions right.
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